Three major equity index sponsors – S&P Dow Jones Indices, FTSE Russell and MSCI – announced that they would remove ten Chinese companies from their indices. These actions were in response to the Executive Order signed by the President on November 12, 2020. The Executive Order bans investments by U.S. persons in publicly traded securities of Chinese Communist military companies (as defined in the Executive Order) (“CCMCs”), or securities that are derivative of, or designed to provide investment exposure to, such securities. There are 31 CCMCs listed in the Executive Order.
S&P Dow Jones Indices and FTSE Russell removed these constituents from their respective indices on December 21, 2020. Removals from the MSCI Indices became effective on January 5, 2021. MSCI Indices notes that the deleted issuers represent 0.04% of the MSCI ACWI Investable Market Indices and 0.28% of the MSCI EM Investable Market Indices.
Risk factors for structured products linked to emerging markets indices tend to be focused on actions by the government of the emerging market home country that might negatively affect the value of the constituent issuer's securities. Draftspersons should consider mentioning the effect of sanctions or other governmental actions by other countries that affect the value of the securities of the emerging market country issuer.9
9 The Securities and Exchange Commission has also raised concerns about risk factors relating to emerging or frontier markets issuers. See our article at: https://www.mayerbrown.com/-/media/files/perspectives-events/publications/2019/12/finalri211.pdf.
Originally published in REVERSEinquiries: Volume 4, Issue
Click here to read the articles in this latest edition.
Visit us at mayerbrown.com
January 19 2021
Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the "Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe – Brussels LLP, both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC 303359); Mayer Brown, a SELAS established in France; Mayer Brown JSM, a Hong Kong partnership and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.
© Copyright 2020. The Mayer Brown Practices. All rights reserved.
This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.